Recession-hit Slovenia braces for more austerity

LJUBLJANA (Reuters) - Slovenia is gearing up for more austerity after the government won pledges of support from powerful unions and most political parties for a package of cuts designed to set the economy back on the path to sustainable growth.

Lawmakers will vote on Friday on the programme, which the government hopes will stave off further rating downgrades and allow it to return to international credit markets.

"Parliament is facing one of the most important decisions in its history," Prime Minister Janez Jansa told deputies at the start of Thursday's debate on the measures. "Without a consolidation of public finances it is not possible to resume sustainable economic growth."

Slovenia, which exports about 70 percent of its production and was the fastest growing euro zone state in 2007, was badly scarred by the global crisis and is mired in a new recession after a mild recovery in 2010.

Jansa took office in February after a snap election in December, pledging to cut the deficit, speed up privatisations and improve the country's competitiveness by cutting red tape and taxes.

His programme aims to cut state spending to 9 billion euros ($11.64 billion) this year from 9.4 billion in 2011, narrowing the budget deficit to 3.5 percent of gross domestic product from 6.4 percent.

He has won support for the plan, drafted by his four-month-old centre-right administration, from most parliamentary parties.

Major unions, which staged a strike by public sector workers against the programme last month, said this week they would not try to block it via a national referendum.

REFORM DRIVE

In Slovenia, a referendum can be called with 40,000 citizens' signatures. Once a law is rejected at a referendum, parliament cannot pass similar legislation for one year.

Last year four unrelated laws, among them a crucial pension reform aimed at raising the retirement age, were rejected at referendums. This eventually led to the ousting of the previous centre-left administration in September.

Jansa's government inherited an ailing economy expected to decline by 0.9 percent this year due to lower export demand and a fall in domestic spending, after a contraction of 0.2 percent in 2011.

Exports, the main growth driver, rose only 0.4 percent year-on-year in March, the weakest growth in the past 28 months, due to a general slowdown in the EU and Slovenia's waning competitiveness.

Credit agencies have urged Slovenia to cut its deficit further and implement economic reforms, and all have cut their ratings for the country several times since September. Standard & Poor's rates it at A+, Moody's at A2 and Fitch at A, all with a negative outlook.

Market sentiment towards the country has also declined, and the government had to postpone last month a planned 1.5 billion euro bond issue - whose maturity it did not specify - after the yield demanded exceeded 5 percent.

"Investors will wait to see whether these measures will be implemented, so (debt) yields will not fall overnight. I expect the government will issue the bond in June or July," said Bojan Ivanc, an analyst at KD Banka.

Parliament is expected to vote on the austerity package late on Friday.

(Reporting By Marja Novak; editing by Zoran Radosavljevic and John Stonestreet)

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